Tax Justice: Our Nation Is At Stake

U.S. Rep. Charles B. RangelThe Honorable Charles B. Rangel is serving his 22nd term as the Representative from the 13th Congressional District, which stretches from upper Manhattan to northwest Bronx. A founding member of the Congressional Black Caucus, he made history as the first African American member of Congress to lead the powerful House Ways and Means Committee. He is a member of the Joint Committee on Taxation.

President Barack Obama recently called on Congress to extend tax breaks for America’s 114 million middle-income families that make less than $250,000. The President has also proposed to let the Bush era’s high-income tax cuts expire at the end of this year and use the resulting $1 trillion in savings over 10 years as part of a balanced plan to reduce deficits and debt and put the nation in the right direction towards shoring up our national budget.

This proposal will not only also usher in a new, desperately awaited era of fundamental tax reform but also give us an opportunity to bring more fairness to the current tax system.

Though the specific issue at hand is tax policy, the debate raises fundamental questions about our government. Is the purpose of government to provide services and help ensure widespread prosperity or to do as little as possible and provide a vacuum for pure market freedom? Is the government the steward of the rich or the multitudes? Will our political institutions foster consensus, compromise, and common sense, or sensationalism and polarization? These questions stand at the core of our tax policy and cannot be ignored.

Currently, our tax policy is the source of serious injustice. Under the present tax code, many of the wealthiest Americans are taxed at a significantly lower rate than their middle-income neighbors. This startling fact was popularized by billionaire investor Warren Buffet’s extravagant example in which he revealed that he paid a lower tax rate than his secretary.

In fact, roughly one-quarter of all millionaires face a tax rate lower than the one faced by 10.4 million moderate-income taxpayers. What that means is, that in a country that prides itself on equality and helping those in need, the wealthiest citizens contribute disproportionately less in taxes than average Americans do. The situation is morally unsustainable, not to mention economically unsound, and must be changed.

President Obama’s call to let expire tax cuts for Americans earning more than $250,000 is the first step towards that change. It also means reforming the tax code to ensure that all Americans are contributing their fair share in driving our government’s engine.

Some claim that allowing tax cuts for the wealthiest 2% to expire means destroying jobs and job creators or de-incentivizing savings and investment. These claims are long-held, traditional assumptions but without economic basis.

The President knows better than anyone the importance of small businesses, particularly in their role as job creators in a slow economy. He has already cut taxes for small business owners 18 times since in office. And now, he has plans to cut taxes for them again: 97% percent of small businesses fall under the $250,000 threshold and would receive an economic boost from his proposed solution.

History teaches us that, when it comes to savings and investment, Americans simply do not plan their financial lives around their marginal tax rate. The traditional economic theory that people will save and invest less when they are taxed more assumes that people make impressively far-sighted, purely rational decisions. But, empirical evidence does not support that theory. For instance, over the past 30 years capital gains rates have been cut in half; nonetheless, savings have fallen as well.

Common sense tells us allowing tax cuts for America’s wealthiest to expire is a good idea. It will pave the way to cutting our national debt and boost economic recovery by supporting small businesses– two things we desperately need.

Then why do some vehemently oppose this common sense proposition? The only explanation is that they hold fundamentally different views about our government. Opponents of just tax reform view our government as a tool for engineering pure market competition, not for providing services and ensuring widespread prosperity; the steward of a wealthy few, not the moderate majority; and a place for partisanship and polarization, not common sense, consensus, and compromise.

These opponents stand in the way of our country’s progress and dig us further into the deep trench of political stalemate. There is much more at stake in this debate than our current budgetary considerations.